It is the normal practice in apartment developments or other complex developments to set up a management company to look after the maintenance of the structure of the building and the provision of services to the owners and occupiers of the individual units in the development. Control of this company normally remains vested in the developers until the completion of the development and the sale of the last unit, at which stage the common areas which remain the developer’s ownership should be transferred to the management company, if not already vested in it, and control of this company should be passed to the owners of the units in the development. Normally a contract is entered into at an early stage between the developers and the management company for the assurance to the latter of the common areas, such assurance to be effected following completion of the sale of the individual units.
It is the normal practice for the solicitor acting for the developer to give an undertaking to the purchaser’s solicitor on the completion of the sale of each unit that a copy of the assurance of the common areas to the management company will be furnished after the assurance has been stamped and registered. The Conveyancing Committee has received complaints that there have been significant delays in the transfer of common areas in some developments and that in some cases the company in which the common areas is vested has been put into liquidation or been permitted to be struck off the register of companies.
The question of the liability of the solicitor who has given the undertaking in respect of the transfer has been raised with the committee. The first point which has to be made is that the undertaking has been given on behalf of the client and if the solicitor had no knowledge of the likelihood of the company being struck off then the solicitor can hardly be liable on foot of the undertaking. If, however, the solicitor has knowledge of the likelihood of the company being struck off, then, apart from drawing the attention of the directors to the matter, the solicitor owes a duty to the solicitors for the purchasers to whom the undertakings were given to advise them that circumstances have arisen which cast doubt on the solicitor’s ability to comply with the undertakings.
In the case of a liquidation, the solicitor will presumably have notice of the proposed liquidation and in this case will not only have a duty to advise the solicitors for the purchasers of the proposed liquidation but also to advise the liquidator of the existence of the undertakings which will constitute liabilities of the company.
There have been a number of cases where the owners, dissatisfied with the provision of services by the developer, have declined to take control of the management company and, as a result, the developer has not transferred the common areas to the company. There have been cases where the owners have grouped together to provide the day-to-day services which they require on an ad hoc basis. However understandable this decision may have been, it leaves the management of the common areas, which of course includes the maintenance of the structure and the insurance of the building, in a most unsatisfactory state. In such a situation, the solicitor for the developer is entitled to, and should, notify the purchasers’ solicitors that their clients’ refusal to take control of the management company makes it impossible for the developer’s solicitor to comply with the undertaking to transfer the common areas.
As indicated above, the undertaking given by the developer’s solicitor should be confined to supplying a copy of the assurance to the management company.